Gold drops more than 1% amid tensions
Gold fell for a second consecutive session today, as renewed fighting in the Middle East heightened inflation concerns and bolstered expectations that the US Federal Reserve (the US central bank) will keep interest rates elevated for longer.
US and Iranian forces exchanged intense missile and drone attacks, with Tehran targeting US facilities in various Gulf countries on Sunday. The Iranian capital also announced the closure of the vital Strait of Hormuz once again. Oil prices rose by approximately 3 percent following these developments, according to Reuters.
Ole Hansen, analyst at Saxo Bank, said that the return of hostilities in the Gulf has reignited inflation fears and signaled that the Federal Reserve may tighten monetary policy, placing additional pressure on gold due to rising bond yields and a stronger dollar.
Hansen added, “Focus on the Middle East, rising oil prices, and reduced liquidity during the summer holiday period are all key factors that could push gold prices out of their current consolidation range of $3,900 to $4,200.”
Nicolas Frabille, Global Head of Institutional Markets at ABC Refinitiv, stated that “any escalation of violence in the Gulf puts downward pressure on gold prices.” He continued, “The question is whether a de facto or partial closure of the Strait of Hormuz will lead to a long-term contractionary effect, which could actually support gold if reduced demand leads to a decline in economic activity.”
This week, attention will focus on the first semi-annual testimony before Congress by Kevin Warsh, chairman of the Federal Reserve (the US central bank), alongside a range of key US economic data, including the Consumer Price Index, Producer Price Index, and June retail sales figures, in search of new indicators regarding the economy, inflation, and monetary policy expectations.
According to CME Group’s FedWatch Tool, traders currently price in a 71 percent probability of a US interest rate hike in September, up from 63 percent last week. Attention this week will center on the first semi-annual testimony before Congress by the new Federal Reserve chairman, Kevin Warsh.
In other precious metals, spot silver fell 1.6 percent to $58.8795 per ounce, platinum declined 0.3 percent to $1,622.72, and palladium dropped 0.7 percent to $1,267.46.
